How Credit Cards Work: Pros, Cons & Tips For Using Credit Wisely

When used correctly, credit cards can improve your finances by giving you access to good cash-back rates and cheap (or even free) travel.

Here's how to leverage their benefits without stacking up piles of high-interest debt.

What Is A Credit Card?

A credit card is issued by a bank or other institution and allows you to buy goods and services based on credit.

How Payments Work On A Credit Card

After you make a purchase with a credit card, one of two things can happen: 1. You can pay the minimum payment 2. You can pay the whole amount you owe

How Credit Card Companies Make Money

Credit card companies make money in a variety of ways. Here are some to be familiar with: 1. Annual fee 2. Balance transfer fee 3. Cash advance fee

5. Foreign transaction fee 6. Interest charges 7. Late payment fee 8. Over-limit fee

Credit Card Pros

1. They help you build credit. 2. They come with valuable rewards. 3. They’re convenient. 4. They come with perks like warranties and purchase protection.

Credit Card Cons

1. They charge interest. 2. They have numerous fees. 3. Credit cards cause people to spend more. 4. They can hurt your credit score if used irresponsibly.

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